Expert Analysis of Today's Market

• The dollar pared overnight gains against the euro after US durable goods orders fell in May. The yen rallied on Wednesday as concerns about US credit risks and sub-prime troubles dimmed appetite for riskier investments across the globe. The high yielding currencies like the New Zealand and Australian dollars slipped. The focus will now turn to the FOMC interest-rate decision with its accompanied statement on Thursday. The FOMC is expected to hold rate policy steady and unlikely to shift its concern about inflation. We will look for any Fed reference to sub-prime troubles and possible measures to ease the troubles. We expect the Fed to maintain its monetary stance.


• The EUR/JPY fell the most in 10 weeks as investors pared holdings of emerging-market bonds and stocks funded by loans in the yen. The pair is above strong support. That is unlikely to be penetrated unless there is a rout in the global asset markets.

Financial and Economic News and Comments

US & Canada

• US durable goods orders fell a more-than-expected 2.8% m/m in May to a seasonally adjusted $213.02 billion, the Commerce Department said. New orders excluding transportation declined 1.0% m/m versus a consensus expected gain of 0.2%. The decline was led by fewer orders for aircraft, metals, and machinery. Durable orders rose only 0.3% y/y in May after a strong 5.0% y/y rise in April. The numbers are still weak but not necessarily deteriorating.

Europe

• UK retail sales slowed for a second consecutive month following the 3-year peak seen in April, the Confederation of British Industry said. In its latest distributive trade survey, the CBI reported the balance of retailers saying sales were up at +17. This is the lowest balance since November 2006.


• It is likely the European Central Bank will raise interest rates again, but this will depend on what the data say about the Eurozone’s economy, ECB Governing Council member Nout Wellink said.

Asia-Pacific

• Japanese retail sales posted a larger-than-expected 0.1% y/y rise in May after falling 0.7% in April, the Ministry of Economy, Trade and Industry said. This is the first monthly y/y gain since a 0.5% rise in September 2006.


• Chinese consumer confidence eased in June due to a sharp rise in food prices during the month, according to the result of the Xinhua Finance/eziData China Consumer Confidence survey released for the first time on Wednesday.


• Grant Spencer, Deputy Governor of the Reserve Bank of New Zealand, called intervention an “ongoing progress” but said the central bank did not attempt to defend a particular level of the exchange rate. He added that intervention “does not alter monetary policy and does not signal future easing of conditions.”

FX Strategy Update